Abstract
The research paper attempts to investigate the connection between Ownership Structure and Audit Committee Effectiveness on discretionary accruals in Pakistan. This study analyzed 5 years of data over the period of 2013 to 2017 of 169 listed firms of the Pakistan Stock Exchanges (PSX). The data is panel and it is analyzed with the fixed-effect regression to check the association between ownership structure and audit committee effectiveness on discretionary accruals. The findings of this article show that the effectiveness of an audit committee is very instrumental in bringing down the value of discretionary accruals. This paper confirms the view that audit committee effectiveness mitigates discretionary accruals in PSX listed firms, Furthermore, this study found no clue that blocks ownership, management ownership, foreign ownership and institutional ownership constrain discretionary accruals. To the best of researchers' knowledge, this empirical study is first of its kind in Pakistan. The present research study recommended and supports the recent amendment in Pakistan Corporate Governance Code about audit committee independence and expertise for reducing discretionary accruals.Keywords: Ownership Types, Audit Committee Effectiveness, Corporate Governance, Discretionary Accruals, Pakistan Stock ExchangeJEL Classifications: G34, M4 DOI: https://doi.org/10.32479/ijefi.10081
Highlights
Companies around the globe provide financial information to outsiders through financial statements reporting
The objective of this paper is to investigate that “Do Ownership Structure and Audit Committee Effectiveness constrain discretionary accruals in Pakistan stock exchanges (PSX) listed firms.”
Block ownership, insider ownership, and institutional shareholding are the proxies of ownership structure while for audit committee effectiveness an index of four points has been used in this study consisting of 1 point each for Audit committee expertise, independence, size and meetings
Summary
Companies around the globe provide financial information to outsiders through financial statements reporting. The most important element of financial statements is earnings, and it is considered the main indicator of the financial position of the companies in the eyes of outside investors. The difference between management and shareholders’ goals may fuels management to apply and utilize the flexibility of accounting standards to manipulate earnings in financial statements (Lassoued et al, 2017). This opportunistic behavior on behalf of the management is called earnings management (EM) (Hussain et al, 2019; Shah et al, 2020)
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